US E&P Consolidation Wave ‘Good for Halliburton,’ says CEO

The mega-mergers of America’s two biggest producers — and rumors of more mergers to come — are positive for business and show the long-term value of natural gas and oil, Halliburton Co.’s chief executive said on Tuesday. Jeff Miller.

Miller held a conference call to discuss third quarter results for the Houston-based oilfield services (OFS) giant. He also shared his perspective on how consolidation in the exploration and production (E&P) sector can impact the business.

ExxonMobil earlier this month agreed to pay nearly $60 billion Pioneer Natural Resources Co.’s Permian Basin pure play acquisition On Monday Chevron Corp. said it would pay about $53 billion to buy U.S. independent Hess Corp. Rumors of more E&P ties are also said to be in the works.

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Miller was asked if this will help or hurt the OFS sector, and Halliburton in particular.

“Great picture, good for Halliburton,” he said. “I think it does a couple of things. Sure, it shows the long-term importance of oil and gas…and the long-term importance of North America…

“What we’re seeing are the big players taking a really long view, and those are customers who work in cycles.” The consolidation is likely to create a “much more stable” North American market, where Halliburton is the best completionist.

Thumbs up, says Miller

“I like our position,” the CEO said. “Our customer mix today is clearly biased. We mostly work with very large private and public entities… They are the customers who care about the things we work on at Halliburton. We’re working on important things like productivity, efficiency and recovery, so consolidation “will be good…”

E&Ps consolidating their operations are also likely to help accelerate innovation in technology. This would include the need for more electric fleets, known as e-fleets, which improve efficiency at the well site.

“I think it’s exactly the kind of tool that our customers want to have in their hands,” he said of e-fleets. “North of 60%” of Halliburton E&P’s sales are to “repeat customers. They are not scientific projects, but are built into the workflows for them.

What is the outlook for 2024?

In North America, Halliburton started in 2023 with strong activity from its E&P customers. Revenues gradually leveled off in the third quarter, but Miller said they shouldn’t start to pick up until next year.

“Everything I see today reinforces my belief in the longevity of the upcycle,” he said. “In North America, Halliburton has performed exactly as I expected…the North American business has changed. Despite the U.S. rig count falling about 20% since the fourth quarter of last year, Halliburton still posted strong margins, unlike in previous volatile cycles.

Since 2015, the company has revised its strategy and changed its operating model as the market structure evolved. The strategy in North America, traditionally Halliburton’s biggest market, is to “maximize value,” the CEO told analysts.

“We’ve invested in technology, Zeus electric fleets, automation, downhole diagnostics… To get value, we have to create value.” The company also reduced overall operating costs. For example, hydraulic fracturing equipment is only produced under long-term contracts to avoid equipment downtime.

“Today, the market is more consolidated, more focused on revenue and cash generation,” Miller said. “Customers place value on technology and value. And the service industry is rewarded on revenue rather than growth. Never before has North American success been better aligned with our customers.”

Tea The number of land rigs in the US has decreased compared to the previous year, however, by a double-digit number. What does this suggest for future fission activity?

“Looking at ’24, there are a few things outside of activity as I see it,” Miller said. “We have asymmetric opportunities in North America. We expect activity to increase, not decrease, through 2024, given where we are … The opportunity is around the demand … an opportunity that is unique to us.”

In keeping with its majority share of the North American completions market, “our drilling business is certainly an asymmetric opportunity for Halliburton…the technology-only advantage itself.”

With North American E&P likely to start expanding by next year, “any rig count growth will accelerate for this technology.”

More activity by 2024?

However, defining where production levels will be in 2024 is tricky.

“We’ll know a lot more as we go into next year and know where the production levels are,” Miller said. Private E&Ps were “super busy in early ’23… and then they weren’t drilling wells in the late summer. That will have an impact on production in 24…” However, it is “hard to imagine less, not more… For those reasons, we don’t see activity going up from here.”

In North America, revenue was down 3% sequentially, primarily due to lower pressure pumping services in the US and fewer well intervention claims in the Gulf of Mexico. Partially offsetting the decline were better completions sales in US offshore waters.

In the international field, sales gradually increased by 3%. Latin America led with sales up 5% due to increased pressure pumping services and liquids activities in Argentina, completions sales in Brazil, as well as improved project management and drilling services in Colombia and Ecuador. However, in Mexico there were lower software sales, lower project management activity and lower well construction services.

Net income was $716 million (80 cents/share) in 3Q2023, compared with $544 million (60 cents/share) a year ago. Total sales reached $5.8 billion, up 8% from a year ago.

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